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Friday, December 28, 2012

Di Leo: Greco Sees Double

By John F. Di Leo -

The minor mob boss from the south of Europe learns about double-entry bookkeeping… coming soon to a western nation near you?

It was a good day for a walk. The sun was shining, the air was clear… the view from Athens, out across the lovely Aegian Sea, had never been so sparkling. So Greco put on his pea coat and fisherman’s cap, clipped his blackjack on his belt and checked his pocket for his switchblade, pulled on his driving gloves and walked outside.

In the old days, Greco had more employees to help with the collection task; he just got the business himself, then sent out his bagmen for the monthly protection money (weekly for some… you might say Greco’s business required certain flexibility in payment plans).

But the economic downturn had taken its toll. Greco’s business couldn’t afford to lose its enforcers, so the collection agents had to go. As they retired, Greco didn’t replace them, he just took over their routes himself. Today would be a restaurant day; there were several restaurants he protected in a certain tourist district and the neighboring business district as well. So today, he locked his door and headed on his long walk to the day’s collections. Times like this, he envied the businesses that can just send an invoice in the mail, but we make our choices, and we live with them. So, on this day, like thousands of others over the past thirty years, Greco the Mob Boss went to work.

First stop was Calista’s place, an opulent looking restaurant with bright lighting, catering to the business crowd. As he walked in, the hostess was folding napkins and setting silverware; she put her work down and rushed to her podium. “Just one for lunch, sir?” she asked. “Or should we prepare for a group?” she added hopefully.

“Too early for lunch, ma’am,” answered Greco. “I’m just here on an errand. Would you let Calista know that Greco’s up front?”

The name got her attention. She shrank back a step, and said “I’ll get her now, sir.”

But before she could turn around, Calista had appeared. “Stick around, Tia, you’ll have to make this payment next month.” The hostess nodded and watched carefully.

Calista set two small strongboxes down on the table before her, first flicking a switch to lock the street entry door, muttering “just in case anyone should walk in… not that anyone would, this early…” She opened each and removed some Euro notes from each, first writing 200 in the one book, then 100 in the other. Rummaging around in the box for a moment, she found a sticker that read “drapery repairs” and put it next to the 100 entry, then scribbled “Greco” by hand in the other book on the line with the 200.

Greco hadn’t seen anyone pay him out of two different strongboxes before. His quizzical expression was evident, and Calista called him on it. “What, you’ve never heard of double entry bookkeeping?"

“Well, sure,” answered Greco. “But I thought double entry bookkeeping was just for my kind of business. I never had a customer pay that way.”

“What do you mean?” asked Greco. “You’re always busy at lunch; this is a successful restaurant!”

“Is it now… wish I agreed.”

Greco was one of these people who just automatically assumed that if a restaurant was busy, that meant it must be successful. So Calista checked her watch… plenty of time before anyone started to arrive for lunch… and took the opportunity to set him straight.

“Have a seat, Greco.” Then, directing this next order to Tia, said “Get him a Metaxa. I’ll have a mineral water.”

As they sat, Calista muttered “Where to begin…,” then sat back, and started the lesson.

“When you run a business – any business – there are different kinds of clients. Some you can make a lot of money on, others aren’t worth having, others won’t make you rich on their own, but they provide the income to keep you going, and so forth. Everybody’s different. Right?"

Greco nodded. He understood this; he had low risk customers who didn’t pay much; he had high risk customers that he had to practically post a guard at, to make sure nobody messed with them. He didn’t just protect people from his own organization; Greco really did make sure that nobody else muscled in on his clients either. It helped him sleep at night.

Calista continued. “The restaurant business has a bar trade, a lunch trade, a dinner trade, an after-theater trade. We have all those here at my place. Some places have a different mix; some are all lunch, some are all dinner. Some places are located right on the beach; they pick up the cruise ships and other tourist trade. The less regular your business, the harder it is to staff appropriately.

“What do you mean?” asked Greco. “Doesn’t the size of the place determine your staff? A small bar, just a couple of bartenders, a big place, a full cadre of waiters and chefs and so forth?”

“No, Greco, there’s a lot more to it. Bars only need bartenders, and maybe an added dishwasher if they’re busy, somebody in the back to cook if they serve appetizers. But restaurants need different numbers of chefs, sous chefs, and cooks’ helpers… different numbers of waiters and hostesses, busboys too. The size of the place is just one piece of the puzzle; how busy your lunch is, how busy your dinner is. Whether your fish or your rice is more popular, whether your pastries or your appetizers do a good business. All these things determine whether you have too many staff, too few, or just right. Spend too much or too little on staff, even if you’re always jammed, and you’ll go broke.”

That made sense to Greco; the price of a stuffed fish was higher than the price of an appetizer of fried squid. He nodded, and she went on.

“Well, as the downturn has gone into years, what’s happened to my business, through no fault of my own, Greco? What’s affected me?”

Greco didn’t know what she was driving at, so she continued for him.

“Same thing as you, Greco! If there are fewer businesses in the neighborhood – office buildings have higher vacancy rates, apartment buildings have more empty flats – then my clientele drops, right? No matter how good a job I do, if the buildings that feed my business have 20% fewer renters, then I’m fighting for a higher percentage of a shrinking pool of potential customers. That’s been killing me, and it’s driven some of my competitors out of business.”

Tia brought their drinks, and Calista motioned for her to sit down too. “I’m grooming Tia to take over while I’m out of the country next month. Anyway… I’m not saying that the downturn is the only cause of a business failing; this is a hard business even in a boom. But a decent place that would survive and even thrive in a normal economy is going to fail in a bad one. There are restaurant closures all over the place these days; nobody can weather a storm forever, not even a weatherman.”

She took a drink and went on. “If the lunch trade drops, I have to decide whether to try advertising, or different pricing or a different menu, to try to beef it up. Or maybe I should just give up on the lunch trade and close ‘till dinner.“

Greco perked up at that. “Sure, a lot of places are only open for dinner. That works.”

“No, Greco. That MIGHT work. But it might not. There’s no silver bullet. Where I am, lunch is better than dinner. A few blocks from here, dinner is better than lunch. Next door to a theater, your best time is late night appetizers after a show lets out. Across from the big pier, your best time changes from day to day; your life is successful only if you can stay flexible and keep a copy of the port bookings. If the tourist ships are on time, you can survive; if they’re undependable, you can’t make it.”

“What’s the big deal?” asked Greco. “I’ve got a client with a clothing shop across from the pier, she keeps the same hours all year, never changes…. And she’s doing fine. It doesn’t seem to me that the boat schedule has anything to do with her business. Whether she’s busy at 9:00am or at 3:00pm, who cares? She’s still selling shirts.”

Calista smiled. “Does Petra make the shirts custom-fitted when the clients walk in?”

“No, of course not. Her clothes are on racks and shelves, ready to sell."

“Exactly, Greco. How many people would eat my food if it was on a shelf, waiting for customers, for three weeks before somebody ordered it?”

Greco started to get it at last, as Calista said “I need to keep my staff lean, almost empty, when I have no customers. I have to have a full kitchen and full wait and bar staff when I’m busy. If I plan wrong, either people never come back because of the lousy service, or I lose money on every sale because I’ve overstaffed. The difference between enough, not enough, and too many can mean slow food drives the people away, or that I’m paying to run two restaurants when I only have customers for one. Only a third of my clients make reservations for dinner, even fewer for lunch. I have to do my best at guessing. I read the papers, talk to nearby hotels about convention schedules, check the port schedules for tourists. And still I have too few people some days, and too many on others.”

“Wow, I never had any idea,” exclaimed Greco. “I just figured you hire cooks and waiters, put together a menu, and the money just rolls in. Sounds like it’s a lot harder than I thought.”

Calista smiled. “You sound like the government. That’s what they think. They all assume a small business just opens its doors and money pours in. But it’s work – hard work – and in my business, everything depends on how well you can predict your staffing needs. Anybody who’s ever been to a restaurant knows how important it is to have the exact right number of people. The bigger the restaurant, the more of a challenge that becomes.”

Greco thought for a second, and asked “what about the lulls? What do you do during the lulls between lunch and dinner, or between the dinner rush and the late night after-theater arrivals?”

“Good question. It depends on a lot of things. Some places have the wait staff take advantage of the lulls to help with the cleanup, the dishwashing, the floorwaxing. The cooks can do prep for the next rush, making the sauces, cutting up the meat, and so forth. But there’s only so much you can do in advance. If you have too many in your wait staff or kitchen, and if the lulls are too long, you’re paying a lot of dead time when no money’s coming in to justify it.”

“So what do you do?” probed the mobster, interested in something other than his own business for once (possibly because he hoped to get another free Metaxa if he stuck around long enough).

“Well, a lot of us fail, of course,” Calista answered with a shrug. “Or we try splitting up the hours, getting staff to just work for the rush periods and not at others. A housewife who lives nearby, for example, can work from 11 to 1:30 while her kids are in school, and return from 6:00 to 9:00 when her husband is home to watch the kids.” Greco nodded that that made sense, and she continued. “But it’s not easy to find a housewife in that circumstance. And the government fights that kind of arrangement tooth-and-nail.”

“Why would they fight it?” a bewildered Greco asked her. “Sounds like a win-win to me.”

“The socialists want every job to be full time,” answered the restauranteur. “They say ‘every wage a living wage’ and claptrap like that. They don’t want to admit that part time work can be fulfilling and worthwhile, that it can benefit both the worker and the employer, by giving a business a shot at success that it wouldn’t have otherwise. And worst of all for them, they can’t collect as much in taxes from a part timer as they can from a full timer. They can’t get it through their heads that demanding that companies hire everyone full time could put them out of business.”

“Well, it makes sense that every wage should be a living wage though, doesn’t it?” asked Greco, suddenly concerned for the employees of his clients. “They need to pay rent, buy food, raise kids, right?”

“No, they don’t!” answered Calista in a huff. “Or at least, they shouldn’t. In a proper economy, the part time jobs, and entry level jobs, are either a starting point for a high school or college student, or a second job for somebody starting out in a regular career, or a second contribution to the family income by a housewife who has twenty hours free a week but not 35 or 40 (or sixty, like us entrepreneurs!). The part time jobs ARE a win-win, like you said. If you demand that every wage be a living wage, you’ll eliminate half the businesses in the country. There are some firms, I suppose, that can pay every employee a living wage – a law firm, a neurosurgeon’s office, an investment advisor group. But most businesses depend on part timers and other low-paid employees to make it.”

“But what about them?” Greco prodded. “Why should they have to live in the streets so you businessmen can prosper?”

Calista shook her head in frustration. “No, they shouldn’t. And they won’t. In a proper economy, when the government isn’t meddling with everything and wreaking havoc like they are now, the people I described aren’t depending on their employer for a livelihood; they’re doing it for experience or for extra money. The housewife is pulling in extra to supplement her husband’s salary. The student is getting gyros money for going out with his friends after school. The part time single guy in the evening is supplementing his daytime full time job until he gets far enough ahead in his main career to be able to live on the one job rather than needing two. That’s how a vibrant, free economy works.”

Greco nodded as if he understood at last, then returned to the subject that started it all.

“So why the two strongboxes, Calista? Why the two sets of books?”

“Ah yes,” she answered. “Back to that. Well, with so many people suffering, the government is issuing more and more checks. They pay people’s welfare and housing and food and transportation, they fund our healthcare and senior care and child care and schooling. They write unemployment checks to practically everybody. Right?”

“Well, sure, that’s what government is for.”

“No It’s Not!” she retorted, then calmed down and continued. “But it’s what modern government does, nonetheless. And all these things cost money, money that has to come from us, the people in business. I pay taxes, my employees pay taxes, I withhold money on their behalf, I contribute on their behalf, not just for them, but for former employees who don’t work for me anymore, for people who never even did… our taxing system has me paying VATs and other taxes all the time, 24 hours a day."

“Yeah, but that’s nothing new.”

“True, but the scale is new. The volume is new. The challenges are new. It’s a harder economy than ever before, with austerity measures reducing my clientele while tax rates increase my costs. I have to find a way to manage, some middle ground. So I have two books, like so many other people do. “

“How does that help?”

“Well, I only pay taxes on the book that the government sees. When people pay by check or credit card, the government sees it, and I pay full taxes on it. My employees also pay full taxes on what I pay them by check. As taxes go up, this segment of my business is dying; I can’t keep up.”

Calista signaled to Tia to get them another round, then went on. “But when people pay by cash, I can meddle with the reporting. Report half of it (they’d be suspicious if I had no cash business at all), but keep some of it in another book, away from the prying eyes of the inspectors. I’m still paying taxes, just not quite as many. I pay my employees the same way, so they also pay taxes, but not quite as many. We survive.”

“Well, as long as you survive, why should anyone complain?”

“Because the government thinks they can get more from us if we declare it all. They don’t realize that declaring it all would put us over the edge and we’d go out of business.”

“Would you really, or is that just something you small businessmen say to get people to feel sorry for you?” probed the skeptical mobster.

“Look up and down the street, Greco. You’ve seen businesses die here. One a week in this neighborhood, thousands and thousands a year, all over Greece. This economy is killing us, and the government just makes it worse by tougher enforcement and tougher taxation.”

Tia delivered their second round of drinks, and Greco was happy again. Nothing like getting something for free. He was all ears.

Calista checked her watch. “I’ve actually got to wrap it up… the lunch rush will start soon. Anyway, the double entry bookkeeping has become a big problem for the government. It’s always existed, in a way, especially here in Greece… paying employees cash rather than setting them up in proper payroll, paying a vendor cash rather than paying tax on it, etc. But it used to be a small part of the economy, a fraction that the government didn’t have to worry about.”

She took a sip of water and watched Greco down half his Metaxa in a single gulp… then pointed to the glasses. “See, when the government was just missing out on a small amount, like the ounce of water missing from this sixteen ounce glass here, they didn’t worry about it. But look at your Metaxa: the government is now realizing that they’re missing out on half their potential taxes, or maybe even more, because the black market economy – the ‘off the books’ economy – has grown so big. They don’t know what to do about it.”

“Shouldn’t they tolerate it,” asked Greco, “since it’s the only way you can survive?”

“Well, to be fair,” said Calista, “they shouldn’t tolerate it at all. It is truly unfair for one business to comply and another not, because it places the two businesses on an unequal footing. By getting away with cheating on my taxes, I have an unfair advantage over a competitor who doesn’t. And also, since benefits are tied to how much a person makes on the books, my employees are eligible for lower government benefits under this double entry system than if I declared their full pay. But again, that would put me out of business. So we’re stuck between a rock and a hard place.”

Greco pondered all this and sipped at his drink. “So what’s the solution?”

“There’s only one solution,” she answered. “Government needs to drastically lower the tax rate and increase enforcement. Lower taxes make full compliance workable. But the tax cut has to be permanent, and has to precede the increased enforcement. At the same time, government needs to drastically cut spending, which it can only do if lower taxes and reduced bureaucracy are allowed to spur an economic boom. Win-win, for everybody.”

“Well, if it’s that obvious,” asked Greco, “then why don’t they do it? Lower taxes and less spending; makes sense to me.”

“Because socialists don’t understand economic growth, Greco. They think high tax rates produce more revenue, because they blind themselves to the damage done by high taxes. And there’s another thing that we have against us here in Greece.”

“What’s that?”

“We have the European Union forcing higher taxes and greater enforcement on us, as part of the austerity programs. So not only do the high taxes cripple our ability and force us into a black market, the EU is insisting on a crackdown that can only make things worse. Belgium is killing us, and they don’t even realize it.”

At that point, a couple of patrons knocked on the door, asking “are you open?” through the glass. Calista stood up, and said her goodbyes. “Sorry, Greco, but my day begins. It’s been good talking with you. Maybe you understand my situation a bit better now?”

“Yes indeed,” said Greco. “Thanks for the information, and for the drinks.”

Greco headed down the street, as Calista welcomed her first customers of the day.

Greco had a lot to absorb… that people might actually be better off with part-time work than full-time… that high taxes don’t produce greater revenue if they kill off economic activity… that the all-seeing, all-knowing experts in Belgium might actually be making things worse here in Greece rather than better…

He had a lot to think about, but only a minute or two to do so. Reality struck at the end of the block. He had arrived at his next stop.

The economic education of Greco the Mob Boss had to take a break; he had another business to shake down.

Copyright 2012 John F. Di Leo

John F. Di Leo is a Chicago-based Customs broker and international trade lecturer, whose columns appear regularly in Illinois Review.

This is a work of fiction, and of course any resemblance between Greco, Calista or Tia and any actual persons, living or dead, is mere coincidence… but the economic catastrophe of Greece that they describe is sadly all too real.

Permission is hereby granted to forward freely, provided it is uncut and the byline and IR URL are included. Follow John F. Di Leo on Facebook or LinkedIn, or on Twitter at @johnfdileo.

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Di Leo: Greco Sees Double

By John F. Di Leo -

The minor mob boss from the south of Europe learns about double-entry bookkeeping… coming soon to a western nation near you?

It was a good day for a walk. The sun was shining, the air was clear… the view from Athens, out across the lovely Aegian Sea, had never been so sparkling. So Greco put on his pea coat and fisherman’s cap, clipped his blackjack on his belt and checked his pocket for his switchblade, pulled on his driving gloves and walked outside.

In the old days, Greco had more employees to help with the collection task; he just got the business himself, then sent out his bagmen for the monthly protection money (weekly for some… you might say Greco’s business required certain flexibility in payment plans).